Property

‘Bul’s Eye

One of the world’s great cities is getting a little greater for investors

Byzantium. Constantinople. Istanbul. Whatever the name, Turkey’s largest city, with over 13 million residents, is a sprawling metropolis that simultaneously straddles Europe and Asia, and has almost always been a key gateway — to the Roman, Ottoman and Byzantine empires, as now the EC — during its long history. Though it’s not the political capital, it is Turkey’s industrial, cultural and financial centre. Sitting on the Bosphorus Strait, it’s a popular tourist destination (arrivals increased 9 percent in 2010) and is rapidly turning into MICE hotspot. If that wasn’t enough, it is artistically vibrant, and the music scene alone makes it a music buff’s paradise. And it’s the birthplace of the ultimate Bath.

As the economic engine of a country — Istanbul generates over 20 percent of its GDP — still in formal negotiations for full European Union membership (Turkey is currently an assoc member), the city’s status as a major business centre is beginning to influence its property market. “We invested in Istanbul about four years ago, and there were a few raised eyebrows then, but we’ve done pretty well in the market there considering what’s gone on in the years since,” explains IP Global managing director Tim Murphy. “What was always interesting to us is that it was the next Euro-zone market. If you look at Istanbul in proximity to mainland Europe, the Middle East and Africa, it’s a hub. It really is in an advantageous spot. For global commerce it’s been very successful.”

The Turkish economy grew approximately 12 percent in the second half of 2010 — second only to China. Turkey was well insulated against the international meltdown stemming from 2008 due to strict policies in place following its own crisis in 2001, and only marginally affected by European and American financial debacles. The country bounced back quickly, and as Colliers International stated in its second half property market review for 2010, part of that had to do with the low debt and high savings among Turkish households. Economic diversification and aggressive trade with other emerging markets are positioning the country well for the future. Though foreign investment has dropped in the last two years that has little to do with Turkey’s fundamentals.

“One of the reasons Turkey’s come out well in all of this is because it hasn’t gone to the Euro yet. It hasn’t gotten dragged in to all that. It’s almost a bad thing to be in the Euro-zone now. It’s worked to their advantage,” Murphy elaborates. “It’s kind of like the UK. It’s in the EU, but not the Euro-zone, and it manages its own monetary policy. The pound is still strong and the UK hasn’t had to bail out other nations. Turkey is in a similar position.”

Demand for Istanbul office space is up and multinationals are starting to move back in. Office rents are stable for now (but could drop as supply improves), industrial demand is stable, the hotel sector remains strong, and the retail market looks to be on an upswing on the heels of improving consumer confidence.

And it would seem everyone wants to live in the city. “Despite the slowdown facing Istanbul’s residential market, demand for residential projects targeting high income groups developed in the city centres and close to central business district remains strong … We believe that the primary investment potential exists in the development of high quality, middle-to-high income ‘residence’ projects in urban regions,” Colliers concluded. Murphy agrees. “Like a lot of hub cities, it’s struggling with its construction. It was huge tourist market and now it’s a city that’s growing rapidly. It’s got a housing supply shortage of a quarter million in Istanbul alone.” Approximately 400,000 are moving to Istanbul each year.

Though foreign investment is relatively slow right now, that’s not likely to remain the case. Ownership laws are welcoming and financing is available, and Istanbul will always be the centre of attention ahead of the capital Ankara, the way commercial centres usually are. Buyers from Europe and the Middle East made US$2.5 billion in real estate investments last year, and Murphy estimates that investment values could double five years down the road. So why are Asian investors notably absent from the investment landscape right now?

It comes down to perception. Political unrest in the region has branded Turkey unstable by geographical association. But as Murphy points out, “Turkey is not managed the same way as some of [its neighbours], which are semi-dictatorships. There’s no talk of it spreading to Turkey.” In a sad irony, that may be good for business — if you look at the situation as one where the glass is half full. “Look at Dubai. Its population growth in the last few months has been strong because companies looking to grow their business in the Middle East have suddenly said, ‘Hold on, we’ll send our executives to Dubai instead of Bahrain. It’s safer,’ and I think you might see that in Turkey,” Murphy theorises. For his clients, centrally located one- and twobedroom flats priced around €300,000 are the ideal investment property. That’s hard to find in Hong Kong for investors looking for good rental returns.